Can I Get a Non-QM Loan with Bad Credit?

The non QM loan product is getting a lot of buzz in the mortgage and real estate world. The traditional US mortgage industry is generally set up for people who have a regular, documented income that is predictable month to month. There are many self-employed and homeowners with bad credit that have compensating factors that make them worthy borrowers and this drives the non QM loan market in 2024.

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However, some worth borrowers have irregular incomes that are seasonal, annual, or otherwise unpredictable. Some examples are real estate agents, sales professionals, and contractors.

What are those parties to do if they want to buy a home? This is where a non-qualified or non-QM mortgage can play an important role. A non-QM mortgage is geared towards borrowers who could have difficulty qualifying for a standard mortgage. But what if you have bad credit? Can you still get a non-QM loan with low credit scores?

Below, learn important information about non-QM loans with bad credit. If you have questions about applying for a non-QM loan, please speak to one of our lending advisors today. Our team is accustomed to working with professionals with irregular incomes but who still may be eligible for a mortgage.  BD Nationwide can introduce you to lenders that offer home loans for bad credit.

What Is A Non-QM Mortgage Loan?

A non-QM home loan is a kind of mortgage that does not conform to the norms established by the Consumer Financial Protection Bureau or CFPB. These rules require qualified mortgages to have specific features and stick to certain financial practices. Mortgage companies offering QM loans must follow the CFPB’s rules as they evaluate each party’s ability to pay and finances.

A non-qualified loan is any type of mortgage that does not comply with CFMB rules. Some common examples of non-QM loans are asset-based mortgages and no-income mortgages. Certain borrowers with non-standard income streams may want to qualify for a non-QM loan because these products offer more flexibility during the mortgage underwriting process. Lenders that offer non-qualified mortgages may work with potential borrowers that other lenders could consider too high of a risk. For instance, a non-QM mortgage lender could offer a loan to someone with a non-salaried income or a lower credit score.

A non-qualified mortgage is a type of home loan crafted to assist homebuyers who may not meet the rigorous requirements of a standard qualifying mortgage. For instance, if you are self-employed or lack all the requisite documentation for traditional mortgage approval, exploring non-qualified mortgages or non QM loan could be a smart choice for financing.

Popular Types of Non QM Mortgage Programs

non QM lendersThere are many kinds of non-QM loans that someone with an irregular income or low credit score could qualify for:

• Investor cash-flow mortgage: Do you have income from investment properties? This non-QM loan may be used to get you approved from your regular cash flow.
• Bank statement mortgage: Some lenders may approve you for a non-QM loan based on a year of bank statements.
• Asset depletion mortgage: This loan may allow you to obtain a home loan based on your assets, not regular income.
• Recent credit event mortgage: If you recently had a bankruptcy or foreclosure, you could qualify with this type of non-QM loan.

• Second mortgage: Many homeowners that have equity choose the home equity loan with bad credit if they have scores below 600 and just need $20 to $50k in cash-out.

For numerous prospective homebuyers and real estate investors, Non-QM loans present the sole opportunity to turn potential investments into reality. As you are aware, real estate opportunities often have a limited window of availability. A Non-QM mortgage provides the means to seize these opportunities promptly.

What Is the Difference between a Hard Money and a Non-QM Loan?

Hard money loans are tailored for investment properties, whereas Non-QM loans are applicable to both residential and investment properties. Hard money loans usually necessitate substantially higher down payments and high closing costs.

What Is a Non-QM Investment Loan?

Non-QM loans offer an alternative financing solution for individuals who fall short of meeting the criteria for a traditional mortgage. Although they provide more flexibility regarding income and credit prerequisites, they do entail higher down payment obligations and interest rates.

Does the QM Rule Apply to Investment Properties?

Exempt loans, as the name suggests, are not bound by the QM rules. Typically, these loans pertain to investment properties, wherein the primary use of the transaction proceeds is designated for a “business purpose.”

Who Are the Best Candidates of a Non-QM Mortgage?

Purchasing property is an intricate and often prolonged process. If traditional mortgage eligibility poses challenges, the situation can become disheartening. However, Non-QM loans offer an alternative.

If a traditional QM loan is unattainable or if there are concerns about qualification based on credit, income, or other factors, exploring a Non-QM loan may be a viable next step. To provide clarity on whether this financing solution aligns with your needs, let’s delve into the most common types of Non-QM loan borrowers.

Non-QM Mortgage Challenges

The primary challenge associated with a Non-QM mortgage revolves around the potential difficulty in repaying the loan in the event of significant financial changes. This concern becomes more pronounced, especially during economic downturns. Nevertheless, the risk of defaulting on any loan is inherent.

However, by upholding sensible lending standards while retaining flexibility, Non-QM loans establish a middle ground for borrowers who would otherwise face limited options or be burdened with excessively high-interest rates, significantly inflating the overall cost of the loan.

The Ability To Repay

Lenders offering standard mortgages must determine if the borrower can afford the loan before it is approved. For example the qualified mortgage lender must prove the following:

• How much income you have
• Your employment status
• Credit score and credit history
• Debt-to-income or DTI ratio

If your finances do not line up with qualified mortgage standards, you may be unable to qualify for the loan. However, if you have an irregular income and want to qualify for a non-QM loan, it is possible that you could qualify it. Some non-QM lenders may allow you to have a credit score of 620 or lower, and some may offer home loans to people with a 500-credit score. You may need to shop among several non-QM lenders to get an approval for a low-score application, but there is no minimum score required.

Keep in mind that the interest rate for a non-QM loan could be at least one or two points higher than a standard mortgage. Also, credit standards will vary by lender, but getting non-QM loan with bad credit is possible for many.

Non QM Alternative Loan Programs

Is Mortgage Insurance or PMI mandatory for Non-QM mortgages?

Private Mortgage Insurance (PMI) is exclusively mandatory for conventional mortgages backed by Fannie Mae and Freddie Mac. In the case of Non-QM loans, lenders will establish their own criteria to mitigate risk when borrowers opt for lower down payments.

Summary on Non QM Loans in 2024

Explore detailed information on each of these non QM mortgage products or consult with a loan specialist to assess which type of loan aligns best with your specific requirements. Do you earn income irregularly or have limited income but plenty of assets? You may want to consider a non-QM mortgage, so speak to one of our experienced lenders today!

Choosing a non-QM mortgage is advisable when you possess the financial means to consistently make timely mortgage payments but are unable to secure a qualifying mortgage. BD Nationwide will help you connect with trusted non QM lenders that provide competitive quotes at no cost.